Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodologies, including key rating assumptions and models. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Red Sea SPV S.r.l. on 14 April 2022. The credit ratings remain as follow:

Class A (ISIN IT0005336943), EUR 921,360,694: BBB-_SF

Class B (ISIN IT0005336950), EUR 152,908,000: not rated

Class J (ISIN IT0005336968), EUR 50,969,000: not rated

Red Sea SPV S.r.l. is a static cash securitisation of secured and unsecured non-performing loans extended to companies and individuals in Italy worth EUR 5,097 million by gross book value (GBV). Loans were originated by Banco BPM S.p.A. and Banca Popolare di Milano S.p.A., and are currently serviced by Prelios Credit Servicing S.p.A. The class A was rated on 15 Jun 2018 and the legal maturity is in October 2038. Scope does not rate class B and class J notes.

The review was conducted considering available servicer reports, payment reports and investor reports up to the October 2021 payment date. This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

As of 29 October 2021, aggregate gross collections were EUR 935.8m, which is 93% of the original business plan gross expectations up to that date (EUR 1,006m). Total gross collections are split between judicial proceeds (68.8%), discounted payoff proceeds (21.4%), and other types of collections that are not yet classified (9.8%).

Around 69.5% of the total gross collections stem from open debtors (i.e. debtors for which the recovery process is still ongoing). The servicer has closed debtors with a GBV of 11.34% of the transaction’s initial GBV registering a profitability that is slightly below Scope’s expectation for the B case scenario.

Interests on class B are subordinated to the payment of class A principal if the Cumulative Net Collection Ratio falls below 70% of the servicers’ business plan target or the Net Present Value Profitability Ratio falls below 70%. This ratio is curable, and once is cured, all accrued and unpaid interest are distributed senior to class A principal payments. As per the last payment date, no class B interest subordination event occurred as the Cumulative Net Collection Ratio and the Net Present Value Profitability Ratio were at 94.7% and 109.7%, respectively. Class A amortised by 44% since the issuance date.

The rating considers the issuer’s exposure to key counterparties.

CREDIT-POSITIVE (+)

Cumulative collections. Aggregate gross and net collections have outpaced Scope’s timing expectations under class A analysis.

Liquidity coverage. Liquidity coverage improved from the April 2021 interest payment date, covering class A interests and senior expenses for almost four interest payments dates, based on Scope’s analysis.

CREDIT-NEGATIVE (-)

Inflation induced economic slowdown: High inflation on the back of soaring energy and commodity prices combined with tighter monetary policy could see recession risk increase substantially. Thus, deteriorated liquidity conditions could reduce the servicer’s performance on collections. Scope has recently reduced its growth projections for Italian economy in 2022 from 4.5% to 4.1%.

Business plan reviews. The servicer has already reviewed twice and downward its original business plan estimates. With reference to the last updated business plan, total collections are around 12% lower compared to initial projections.

The methodologies applicable for the reviewed rating (General Structured Finance Rating Methodology, 17 December 2021; Non-Performing Loan ABS Methodology, 6 August 2021; Methodology for Counterparty Risk in Structured Finance, 13 July 2021) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Rossella Ghidoni, Director

Potential conflicts*
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings. One of the General Managers of Scope Ratings, who joined the organisation on 1 December 2021, has a significant relationship with an affiliate of Deutsche Bank AG, a related third party to this transaction.

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*Editor's note: The 'Potential Conflicts' section was added on 20 April 2022.